Shared office providers, roiled by the pandemic, are splintering into distinct camps at a pivotal time for the U.S. office market as companies consider what an eventual return to the workplace might look like.

Their strategies include forming partnerships with brokerages and landlords, making deals to attract big corporate tenants and franchisees, and creating digital on-demand platforms.

WeWork plans to expand its digital platform as it agrees to a merger to go public; property brokerage Newmark Group bought flexible workspace provider Knotel through bankruptcy court; brokerage CBRE Group bought a major stake in shared office provider Industrious and plans to transfer Hana, CBRE's flexible workspace brand, to Industrious; and IWG plans more franchises even as the parent company lands some big global enterprise deals.

The different approaches come as more companies decide on ways to bring their workforce back to the office after at least a year of working remotely. Shared office providers are placing bets on what they believe the future of office space could hold, and trying to avoid the problems of the past.

"It's become a tough business to break into and nothing like it was 10 years ago," said Nick Clark, CEO and founder of Common Desk, a coworking company he started a decade ago that now has 18 locations in Texas and two in North Carolina. "It's changed dramatically and, unless you have a good differentiator, it will be tougher to win business in the future."

Several coworking companies launched in the wake of the Great Recession, such as WeWork, which was founded in 2010, and the industry was growing until the pandemic caused office demand to dry up and debts to increase. Now major players are betting on future demand for flexible workspaces.

"To me, there is not one strategy that has an advantage," said Charlie Morris, the U.S. flexible office solutions practice leader at Avison Young, in a phone interview with CoStar News. "From my perspective, there's no one-size-fits-all solution for an occupier or owner engaging with various groups, and the competitive field just continues to evolve."

Morris, who spent 15 years advising tenants on flexible and long-term office leases before being named practice leader in 2019, said it ultimately depends on finding the right fit for a company's needs. One of his clients might find it meshes with Industrious, while another one might like IWG for its plethora of locations across the globe, he said.

"With new players like Newmark with Knotel and CBRE's shift to Industrious, they are all putting themselves in a position of trying to capitalize on whatever respective brand awareness in terms of scope and scale they might have and position themselves with the end clientele," Morris said.

Demand for flexible office space is expected to rise and outweigh supply as the pandemic delays long-term corporate leasing decisions and companies seek offices outside of one central hub, Morris said. The flexible office market, which has historically been controlled by coworking companies, is seeing the decision-making shift to landlords as more property owners add flexible office options to their portfolios to meet tenant demands.

"Companies are realizing you can't make everyone happy with a central hub and they need to have workplace optionality," Morris said.

John Arenas, founder and CEO of coworking provider Serendipity Labs, who has decades of industry experience, said there is room for both models, one being a "go-it-alone" approach with shared office providers such as IWG and WeWork having their own entity and brand with tangible real estate. The other model provides a service rather than real estate and includes companies such as Industrious and Serendipity Labs operating an "asset-light business," Arenas said, by signing management contracts with landlords rather than a lease and building out space for sublease to subscribed members.

Arenas compared the two models to the business travel industry, with the service providers being like American Express Business Travel, which deals with multiple hotels and works on behalf of business travel clients, while WeWork and IWG — with over 800 and 1,000 U.S. locations, respectively — would be considered like a Marriott-branded hotel without the need to align themselves with a specific business travel group.

As businesses continue to push landlords for shorter-term leases, "at some point, the traditional real estate model doesn't make sense anymore," Arenas said, with tenant improvements and broker fees being compressed into shorter time frames, making the lease so expensive it becomes prohibitive. That's where shared office providers step in with a solution, he said.

"The pandemic has heightened the interest of big real estate services firms to look at how they will participate in the office sector, with the pandemic being the catalyst for a commitment from these firms to invest in the flexible office industry," Arenas said.

New York-based Serendipity Labs, founded in 2011, is working its way through bankruptcy proceedings and plans to exit the Chapter 11 process in early May. The company that operates through franchises has 32 locations in 15 states after closing some in the past few months, but it expects to open a dozen new hubs this year in the United States and is dusting off plans to expand internationally in the United Kingdom and Canada.

Clark, the founder of Dallas-based Common Desk, expects more operators to offer both traditional and flex offices.

"The flexible office space market is continuing to evolve this year," Clark said in a phone interview. "It's an expansion of the industry as traditional and flex office are on a collision course to be under one operation. No one is quite there yet."

That eventual combination of traditional office space and flexible office space under one roof seems closer to reality with CBRE, the world's largest brokerage, buying a stake in Industrious and Newmark's move to buy Knotel from bankruptcy and expand its operations. Landlords are also getting in on the action, with various partnerships with shared office providers to offer more flexible options to meet tenant demand.

The new strategies of shared office providers seem to suggest that the go-it-alone model was no longer successful: Both WeWork and IWG suffered financial losses and trimmed their footprints in the last year during the pandemic and are changing up their business models to spread risk.

IWG, the world's largest and oldest flexible office space provider, recently hired a U.S. leader to "massively accelerate" its relaunched franchising platform in the United States during the pandemic. The move to rely more heavily on franchise partners is expected to help IWG spread its risk tied to long-term leases, some of which are being renegotiated by the company's affiliates in Chapter 11 bankruptcy proceedings. WeWork, which scrapped its plans to go public in 2019 as potential investors grew concerned about its corporate governance at the time, is attempting to go public again this year through a merger with Bow Capital in a deal expected to close in the third quarter. WeWork plans to expand beyond its core business through on-demand services and more agreements with landlords over the next few years.

Smaller shared office providers are also expanding partnership deals with landlords. Both Common Desk and Industrious launched pilot programs with Granite Properties, a Plano, Texas-based landlord with more than 10 million square feet of office space in the United States. In addition to shared office management agreements at Granite-owned office buildings in Dallas for Common Desk and in Southern California for Industrious, the two coworking companies offer discounted memberships for office tenants in Granite's buildings. Granite launched a leasing platform called Evolve to accommodate tenants' hub-and-spoke offices and help offer more flexibility.

So far, the initial feedback from Granite's pilot programs has been "really good with customers in different stages of returning to the workplace," said Will Hendrickson, a senior managing director at Granite's corporate office in the Dallas area.

"This provides us another option to help solve our clients' space needs and gives a company with an employee that needs to work away from the office a professional and consistent environment," Hendrickson said in a phone interview.

Another partnership between a landlord and a shared office provider involves Westdale Real Estate Investment and Management and WorkSuites. The subscription-style membership service gives Westdale's tenants the ability to access WorkSuites' coworking spaces at a discounted rate, ranging from 15% off a private office to 50% off hybrid memberships and meeting spaces at its 15 Dallas-area locations.

Like other shared office providers, WorkSuites was financially hit by the pandemic but is back on the road to expansion with plans to add four to five additional locations in the Dallas-Fort Worth area and Houston, said CEO Flip Howard. By next year, Howard said he hopes to execute on a plan to expand outside of Texas into markets that could include Atlanta, Phoenix and Miami, Orlando and Tampa in Florida.

Even though business was down during the pandemic, Howard said he's seen a rebound of membership requests in the past few months and he would rather sign traditional lease deals than work out a management agreement with a landlord who would share the profits.

"People are reluctant to sign leases right now, so there should be a boom this year and into next year," Howard said in a phone interview. "For flexible space operators, it was like we were in the honeymoon phase before COVID-19 and everyone could succeed. Now, you have to run a tight ship, and the companies good at running a business and keeping expenses under control are going to be the ones doing deals."

Howard said some of the models shared office providers are planning on executing have flaws and are risky.

"One thing you see in the industry, which baffles me, is everyone talks about big companies and how their clients are credit tenants, like Microsoft or IBM, but with short-term agreements, being a credit tenant doesn't matter. And then you have a lot of risk with large chunks of your space being leased to the same company," Howard said. "If they pull out, your space could be half occupied."